It's common to think of Social Security as an individual account of sorts -- what you pay in, you get back, more or less. That's far from accurate. By design, the Social Security Administration says, the system is tilted in favor of lower-income workers who have fewer resources to save for retirement. In practice, that means that the more money you make, the less you get back, at least as a percentage of your salary. For example, a single, 66-year-old man who earned $50,000 per year on average and retired in 2011 would get an annual benefit payment of about $22,800, or about 45% of his annual salary. If he had earned $150,000 per year, he would get annual benefits of about $30,670 -- just 20% of his annual salary. "People act like the percentage of benefits of your salary you get is the same for everyone and it really isn't," says Jo Anne Barnhart, former Social Security Commissioner.
That's particularly true for the highest earners. Benefits are calculated on a maximum average salary of $106,800, which means anyone who made that much or more -- whether by a few dollars or by a few hundred thousand dollars -- gets the same annual Social Security payment. To be fair, earnings over that threshold aren't taxed, either, and the agency spokeswoman says benefits are meant as supplemental retirement income, not full freight.
Use the SmartMoney Retirement Planner to see how much Social Security payments will cover for you.
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